Why Are We Paying So Much for Gas?
The news seems preoccupied with the price of oil, particularly gasoline at the pumps. The consumer is freaking out and for good reason.
At the same time, we are told that the United States has the most robust supply of oil on the planet. There is no oil or gasoline shortage in the United States. If that is so, why are gasoline prices at the pumps so high?
Gasoline prices at the pump are high because the United States pays a world price for its oil. In other words, we do not pay for oil based upon what it cost to produce and refine in the United States. Consumers pay gasoline prices based upon the world market price for oil. How does that make sense?
In the United States, we do not pay for anything based upon a unified world price. Even for sneakers, most of which are made overseas anyway, there is no one unified set monopolistic price for sneakers. That is true of automobiles and anything else which is made both in the United States and overseas.
“The dominate role in world affairs played by the United States in this century is due largely to its virtual cornucopia of natural resource.” The Energy Crisis and Oil Imports. Energy in the United States was so plentiful that many states individually restricted the amount of coal and oil that could be brought forth from the earth. Those who mine the ground for coal and drilled for oil received a depletion allowance. This was in effect a tax credit for the emerging energy business at the beginning of the 20th Century. The depletion allowance deduction encouraged natural resource exploration.
The United States realized even before World War I that dependency on foreign oil would be a disaster, especially in war time. Oil was and still is the blood that powers the war machine.
The concept of the “triple alliance of oil power” was first introduced to the nomenclature of the oil industry in 1973. The “triple alliance” consists of “a set of professional contacts, friendships between the federal bureaucracy, pressure groups, and appropriate legislative committees.” These groups stick together in order to buoy the price of oil, regardless of whether that is in the national interest or not.
The first oil well dug in the United States was in 1859. By 1876, Americans were developing oil reserves in Mexico. In 1900, American oil production as a percentage of world production, hit its historical low at 43%.
1911 witnessed the Progressive Republican effort to break up the monopoly of Standard Oil which, at the time, controlled 80% of refinery output in the United States. In 1878, that control had been 90%.
The French premiere Clemenceau said, “oil is as necessary as blood in the battles of tomorrow.” By 1912, oil imports had risen to 28% of domestic demand. In 1924, President Coolidge appointed the Federal Oil Conservation Board to investigate the oil import problem. Britain, France, and the Netherlands worked to keep foreigners out of the Middle and Far East. President Coolidge’s FOCB estimated that proved reserves in the United States were only 4 ½ billion barrels, equivalent to a 6-year supply.
In the run up to World War II, tariffs were used to discourage importing foreign oil. In 1948, three years after the end of World War II, the United States became a net importer of oil for the first time in 26 years. The United States became dependent on unstable Middle Eastern Arab regimes for its oil supply.
The dependency of the United States on Middle Eastern Arab oil was both destabilizing and skewed foreign policy in a way that was not to the beneficial interests of the United States or the West generally. President Eisenhower, as a General in World War II, knew a lot about oil dependency. He was alarmed by a 10% import level compared to domestic production. He therefore established the Advisory Committee on Energy Supplies and Resource Policy. The ODM began a program of “voluntary” import restrictions. In 1959, President Eisenhower issued a proclamation placing oil imports under mandatory controls. In 1959, it, “was 9% of domestic production but in 1962, it was raised to 12.2%.”
President Nixon, under strong pressure from the petroleum industry, abolished import quotas. Not all the major oil companies agreed with the President. Some major oil companies favored oil quotas as a price support device. Keeping prices up was important for the industry. While the industry sought new sources of energy abroad, it also wanted to keep the prices high enough to make outrageous profits.
The history of Arab pressure to keep oil prices high for Americans has been at work since the end of World War II. In 1967, Egypt and Jordan alleged that America assisted Israel militarily. As a result, all the Arab oil producing states embargoed oil shipments to the United States. The goal was not only to use oil as a weapon against the independent democratic State of Israel, but also to make sure that gasoline prices for Americans were high at the pump.
Senator McIntyre referred to a component of the economy as something other than Eisenhower’s familiar “military-industrial complex.” McIntyre observed what he called: “The Secret Government of Oil.” McIntyre proposed free trade zones, where the price of oil in the United States would not be dictated by international syndicates or monopolies, but rather the prices would float depending upon the real cost of the product.
The debate over the quota system, with respect to imported oil, is a lot like looking at the tail of the elephant, rather than the trunk. The tail represents the importation of cheap foreign oil. President Trump is anxious to get his hands on Venezuelan oil because it is local (close by) and relatively inexpensive. President Trump believes that importing more oil and having access to fossil fuels will bring down the price of gasoline at the pump. The President is partially right but, unfortunately, he misses the big picture.
Prices at the pump are based upon the international pricing of oil. Right now, it is expensive to get oil out of the terrorist state of Iran. It is very inexpensive to refine that same oil when it comes from Alaska, Texas, or Louisiana.
No one, and we mean no one, has talked about the United States banning the pricing of oil based upon a single, unitary, international, monopolistic market price. The international pricing system for oil is a blatant violation of the United States Antitrust Laws which were created and enforced largely to prevent companies like Standard Oil from creating a standardized price for oil based upon its market power. Where have Republicans and Democrats been on this issue? The answer is nowhere.
In 1973, the President offered legislation to amend the Natural Gas Act so that prices paid by interstate pipelines for new supplies of domestic natural gas would be determined by the competitive forces of the market system. In other words, the price of gas was based upon the cost at the wellhead. We can do the same thing with oil.
The price of oil should be based upon the locale from which it is extracted from the earth. The monopolistic power of the international consortium on oil must be broken.
United States consumers are not paying for costly gasoline because of the President’s appropriate determination to keep nuclear weapons out of the hands of Iran. Americans are not paying high prices for gasoline because of Israel’s determination to survive in a sea of terrorist activity.
United States citizens are paying a high price for gas at the pump because the price of the oil from which the gasoline is produced is based upon the price of oil in Saudia Arabia, Qatar, Iran, and from other bad actors.
It is time that the President of the United States and Congress realized and appreciated that gasoline should be priced upon crude oil which in turn should be priced upon the cost of extraction at the location of its source, just like natural gas.
It is time that we in America stop supporting dictators, despots, and lunatics overseas who want to destroy our way of life by enriching them with inflated monopolistic oil prices.
